Episode 5: How to navigate SaaS business through the recession | A Downturn Special

Speaker A: Hey, everyone. Welcome to the building E Commerce segment of my ils. I'm Ridwan, your host for the show. In this segment, we help out newcomers and early enthusiasts of the E Commerce ecosystem to learn and navigate around this vast digital jungle. Now, if you're new to this channel and segment, welcome. I drop an episode every second on fourth Sunday where you'll find enablers of the ecosystem bringing in their playbook for success. So if you're new and if you haven't subscribed yet, be sure to smack that subscribe button so you get notified every time I drop an episode intro. Welcome, welcome, welcome. If you have watched my previous episodes, you all know I always start with a quick recap of the last one. So if you're here and watching already, welcome back. My folks, it's always great to have you. Last week we had Dmitri Yeremenko all the way from Kyiv, Ukraine, who talked about live commerce, the resilience, the people of Ukraine, and the current status of development in the country. We are all feeling the effects of the invasion, especially right after the pandemic, in very different ways. Prices of commodities and daily necessities are up, consumer confidence is at an all time low, stock prices are dropping like flies, so is crypto and nft. Valuations are down, job cuts are happening in the hundreds, and investors demand to see profit over growth. If you are in the B2B SaaS startup space, especially in the E Commerce segment, this is without a doubt a tough time. But today on this show, we are here to turn things around a little bit. When I started my journey in the B2B SaaS space, I was lost and I was looking for guidance everywhere. I found my light in the content made by one guy who made this industry more digestible and fun. So to guide you through these tough times with the unstoppable energy, I'm super pumped to introduce you to TK Cater. Hey, tk, welcome to the show.

Speaker B: Thanks for having me. Super pumped to be here.

Speaker A: Yeah. So, you know, when I started my B2B SaaS journey, because I did shift from an NGO world to the SaaS space, um, I had no clue what I was doing and where I'd be starting. So the first content that I ever started watching was actually yours. And it's an absolute privilege to actually share a screen with you over here and, uh, be able to share with the larger audience about how to navigate around those difficult times and the space.

Speaker B: Yeah, absolutely. I'm really excited to be here and it's also, uh, an honor to Be here. And we've exchanged so many messages online, so it's. It's fun to be live finally with each other.

Speaker A: Yeah. Yeah. Uh, can vouch that my cat actually watches your video. Not. Not TikTok gimmick. Uh, it's weird. She only watches, uh, your stuff. She watches the Umbrella Academy. Even I don't pay that much attention as much as she does. And she weirdly watches the Office. That's funny. So. Well, two things that are background noise and one thing that I watch.

Speaker B: Seriously.

Speaker A: So, uh, with that being said, um, as much as I know you, I'd love for, you know, our B2B SaaS people and the E commerce space people to actually know more about the unstoppable, super pumped TK.

Speaker B: Uh-huh. Yeah. Um, I mean, my background is in SaaS. I've been in SaaS for the last 15 years or so. Uh, originally, I was born in Bangladesh, and I grew up there until I was about 10 years old and I moved to New York City. I started my first company while I was in college. It was a SaaS company. We didn't call it SaaS back then, but it was SaaS. Uh, we got acquired pretty quickly, uh, moved out to Silicon Valley in California, um, with my college roommates that we started the company with. Learned a ton. Uh, then I worked at Bridgewater, which is one of the best hedge funds in the world. Then I knew I wanted to do another company, so I started my second SaaS company called ToutApp. That's what I spent the last 10 years on. Uh, we pioneered the sales engagement space. Uh, we sold it to Marketo. Marketo. Then we sold to Adobe. Um, once I finally reached Adobe, my parents were proud of me because they know Adobe and Photoshop. Uh, they were proud of me for the other things, but they really recognize Adobe. And then after that, um, I learned a ton. And one of the things I realized is, uh, even if you raise a whole bunch of money in SaaS, the founders are still in a room alone, staring at Google and YouTube and a spreadsheet, trying to figure out how to make tough calls. Uh, and so I started doing videos on. Hey, if you're building a SaaS company, here's three things you need to know. Just from my own journey. And we just hit a million views on the channel, so we're serving a lot of people. I work with a lot of founders directly on their go to market. Alice is one of them. Your CEO's in the program, uh, that's pretty much the backdrop.

Speaker A: Fantastic. Um, I've been a part of Alice for about six, uh, months now and I've been actually trying to getting to implement a lot of your recommendations from what's been coming through shuho and uh, seeing where we're heading in terms of Alice's future, we are very excited and super pumped. So, uh, can't wait to be in this journey. But we also, at the point in time, we recognize and realize how much of a tough time a downturn can be, especially if you're in the E commerce space. So navigating around these loopholes is definitely something that we as a company, even myself, because I'm leading the partner and sales team as well. So, uh, it's definitely something that I look forward to every day because every day is a new challenge that we have to sort of like trying to navigate around. Some day we get good reciprocation, the other days we just don't. And those are the days, um, whatever content that we are able to find. Because this is a new space, even though it's maybe like 10 years old, this is still a relatively new space. Nothing's written down in books that actually work. So trying uh, to sort of like navigate around especially your content, it's uh, it's been the lighthouse, honestly. So, uh, yeah. So thank you so much. Uh, again, fantastic. Adobe, um, well, all brown parents would be happy to know that someone's made it to Adobe. So. Yeah. So, uh, nah, uh, great stuff. Uh, given that we were talking just about the overall downturn, the craziness of the market. Right. I'm sure you have seen the current status of Zendex acquisition and would uh, you say that's something that you would have seen maybe like five, six years ago, something like that happen in, in terms of like how a company like this, even with such a good ARR, would get acquired like this? Yeah.

Speaker B: Ah, well, I, I think, you know, downturns happen. Right. I think what's important in scenarios like this is to reframe how you approach it. This is one of the things, you know, when this started, when the market started to shift a few months ago, just in my own inner circle of founders that I with, uh, we did a special call and we started talking about there's peacetime CEO and there's wartime CEO and uh, I'm a big fan of Godfather. There's the peacetime conciliary and there's the wartime conciliatory. And I think that framing is important. It's. And, and the reality of this, and this is Something we tell all the CEOs that we work with and advise is 2000-2008-2016-2018, 20, 20, 2022. This is nothing new. There are ups and downs in the market. And regardless of the ups and downs in the market, phenomenal companies get made. Um, the one thing that is true also that's uncomfortable for people is in the downturns, the shitty companies die, or the companies that didn't really build the muscle, that didn't do the hard work, they die. And ultimately, if you think about it that way, if you are a founder and you're focusing on building a real business and doing the right fundamentals, then you should welcome times like this. Because this is when the greatest companies are made. And this is when the companies that you look at and you know what? They're full of shit. You look at them and you're like, I just can't believe they're doing that. And, you know you're doing it better. But it's not quite being rewarded. This is the times where the best companies that are doing the fundamentals get rewarded. And I think that's why it's super important for founders to reframe how they look at downturns in the market. Don't be a victim. Don't, um, be like, oh, woe is I. It's like, look, go to the gym, shape up, build a muscle and start getting to work. And you will thrive. Because this is an advantage for companies that are doing the real work and creating real value. I absolutely agree with that.

Speaker A: Um, if you were to look back at some of the companies, because you mentioned there were so many recession periods, right. 2000, 2008, 2016. So if you were to look back with so many years of vast experience, would you be able to highlight one company that's really put in, like, as you mentioned, went to the gym, put in the work, and has come out the other side, like.

Speaker B: Absolutely.

Speaker A: Arnold Schwarzenegger, flexing like a man.

Speaker B: Yeah.

Speaker A: Yeah.

Speaker B: Well, there's. So, uh, we. Let me pull this off. Uh, we. We talk about this, uh, in that wartime presentation. I'll give you more than one company. I'll give you a set of companies. Okay, Just, uh, pull up the right side.

Speaker A: Here we go.

Speaker B: So companies that were started in 2008, 2009. Are you ready for this?

Speaker A: Yeah, absolutely. Bring it in.

Speaker B: This is the list of companies that started in 2008 and 2009, when we had the great financial crisis. Number one, Airbnb. Number two, Cloudflare. Number three, GitHub. Number four, Nut Nix number five, PagerDuty, number six, Pinterest, number seven, Send, Grid, Slack, Square, Stripe, Twilio, Uber, WhatsApp, Yammer.

Speaker A: Okay.

Speaker B: Have you heard of these companies?

Speaker A: I have heard of all of them. We, I, I think it. No, I, I knew the list. It's for, it's for the audiences now.

Speaker B: Oh, no, no, I know, I know, I know. But it's not crazy. When I saw that list, I'm like, holy.

Speaker A: You actually didn't have Twilio.

Speaker B: No founder has anything to complain about. It's like, get to work. The opportunity is so great right now. Absolutely.

Speaker A: I actually didn't know Twilio was a part of that elite list. But no, I, I need to do my homework on Twilio now. But thank you so much for that.

Speaker B: Yeah, yeah, we, in the current, you can't see this because in the slide we're like, you know, we highlight who IPO'd and who exited, and every single one of these companies either exited for greater than a billion, upwards of 27 billion, or IPO. Except for Stripe. Stripe is valued at $70 billion and still private. That's the only exception. Yeah, yeah, yeah, yeah.

Speaker A: Uh, given that, you know, stripe's actually like a, like a staple now, uh, for every businesses, it's insane that if you just look back, even their, like icp, back in the day when they actually started out, it's, it was vastly different than what it is right now. So it's crazy that they survived. And I think for companies that are struggling right now, it's very important to actually go look into each and every one of them, see how they manage to pull in and, you know, take deep lessons from them and apply to your business.

Speaker B: Honestly, like, I, I think in good times it's actually harder to figure out how to win because there's so much noise. Yeah. Uh, I think in tough times like this, it's actually easier to win because all that matters are the fundamentals. And so, like, I don't like, you know, for, for the founder listening, I don't think you need to go do anything crazy. Make sure you have a clear ideal customer profile. Make sure you have clear value prop and messaging on how you're going to create value and make sure you have a clear set of, uh, go to market activities, sales and marketing activities that brings that messaging to your target market. That is it. A lot of times people do a lot of the flash and don't do that fundamentals, and they lose and they get rewarded in good times. In bad times, they don't get rewarded,

Speaker A: they get cut out.

Speaker B: There's less noise. And so the guys that go to the gym and work out and do the fundamentals strive and win, like this list of companies. And that's why like, you know, I think like I see a lot of founders like, oh my God, it's so tough. It's tough times. I'm like, what's so different about right now? This happened in 2020, this happened in 2017 and this happened 2016, 2008. Like this happens over and over, like nothing's changed. And great companies get built, so get to work. It's the founders that don't want to do the hard work are the ones that really complain is what I've learned.

Speaker A: That's, that's how the system's built. If you look at the natural cycle of life, right, like, or uh, even the capitalist system, right, Recessions are meant to happen. Downturns are meant, you can data will always say downturns will happen. So you know, if you're a company that's going to start out at that point in time, or let's per se, you started before and you're in the early stages of building your company and a downturn comes and takes over, you can't blame that for happening. It's the natural cycle of things. So the best you can do is pull up your jocks, get to work. With that being said, one of the things that you actually mentioned about is having your correct icp, uh, having your proper value proposition. This is where we want to take the conversation and shift it to a little bit. Just mentioning about early stage companies. Right. So, um, you know, you're an early stage company, um, you know, you've got a decent product, a good product roadmap, um, and you know that as you keep progressing with the product roadmap, you will, the product will probably hit industry benchmark and you can go and go ahead and do innovations after that. You know, you have a defined icp, but the product isn't fully even ready for that icp. Um, but you know that you have a few cash cows that are not really your icp, but uh, as part of your larger client base, uh, you have a series A to raise in the future and you probably will need a sufficient amount of good mrr ARR to

Speaker B: oddly specific scenario.

Speaker A: Um, and it's an oddly specific scenario for even the next one that I'll give you out. Yeah.

Speaker B: So do you have product market fit,

Speaker A: uh, in this one? No, not yet, no.

Speaker B: So you don't have product market fit and you want to raise.

Speaker A: We don't have.

Speaker B: Okay.

Speaker A: We don't have the product market fit. And what we have essentially right now is uh, this is for the scenario entirely.

Speaker B: Right.

Speaker A: Hypothetical. So this is purely the product. Yeah, it's purely hypothetical. Uh, so we don't have a product market fit yet. We know who our ICP wants to be and we essentially will get there eventually. But we need our cash cows right now.

Speaker B: So

Speaker A: where do you essentially go in the next six to 12 months? What do you do?

Speaker B: Why? Uh, how long has the company been in business?

Speaker A: One year.

Speaker B: Okay, so there are year in to have some revenues. Are they net profitable or breakeven?

Speaker A: Cash flow, break even.

Speaker B: Cash flow break even. But there's no product market fit. There's some cash coming in, but there's no product market fit. Do you have conviction on what's going to get you to product market fit yet? Like high conviction?

Speaker A: Yes, absolutely.

Speaker B: So you have extremely high conviction. You're going to get to product market fit.

Speaker A: Yeah.

Speaker B: Uh, and what's the delay in getting there? Like what's the time? What needs to be done?

Speaker A: Just more product features to get there. That's it.

Speaker B: So you're one feature away from product market fit.

Speaker A: Let's per se. Four.

Speaker B: Four features. Four to six.

Speaker A: Yeah, it's like a year, let's say six to eight months worth of work.

Speaker B: Okay, got it. Um, I think the two things, if I were working with this company, the first thing I would tell these guys is if your cash flow break even, then protect that cash flow and make sure those customers are happy. So you have unlimited Runway. Congratulations. You are now default alive. That's fantastic. Uh, the second thing I would say is, um, challenge your assumptions on what those features are. It's very easy to fall into the one more feature trap on if we just build these two features, we'll have product market. And so and the only way to really stress test that is to sell it to customers and see if they're willing to buy and pre buy. And that way you can prefet. What you are investing a year of development time and capital on is actually going to get you to product market fit. Because until someone pays, conviction is 50 50. Honestly, like it's always 50 50. So those are the two things that I would do. Um, for a company that was in that stage, they're in a great position. Their cash flow break even. They have their default alive. They have a thesis on what their product market fit is going to be so now it's about de risking that.

Speaker A: Yeah, fair enough. Uh, which is what brings me to the next scenario. Right, so you're a company that's pretty set, right? You're looking forward to raising series B or series C. Uh, you're probably going to go into a market expansion or you're going to build a much larger team so that you can really go ahead and kill your competition. Right? So now you have a downturn coming in and you're seeing layoffs left, right and center. And as a founder you're thinking, hold on, should I focus more on net profitability to showcase to my share like my stakeholders that, you know, we don't have to be scared of something in the future like other companies who are doing layoffs or do I just go ahead, kill my competition, go for the mark like rapid expansion with full on confidence and you know, absolutely win it.

Speaker B: Yeah. Uh, and so for that, uh, product market fit is earned in a bigger level. You never have final product market fit. You can always fall out of product market fit. And if not, you have to achieve a deeper level of product market fit. And so if there's a recession then that means that in that equation of product market fit, the market, the variables around the market has changed. So the first question for this one would be given the variables that have changed in the market, do you still have product market fit? Meaning is the market still purchasing this? Is this still an urgent and important problem? Is the demand going to be the same or is it going to be lower? That would be the first thing to really figure out. And based on that, the decision making process becomes very similar to the prior company. Again, this is all fundamentals, right? It's like if the market dynamics have changed, what does that mean for our product market fit? Is the conviction level different? Is our pipeline different? Is our win rate different? Are people buying at a slower pace or a faster pace? And based on that you can start to make decisions on how much do you push on the gas and how much do you pull back. And for a lot of these companies, uh, you know that we mentioned earlier on they focused on, well, let's not do as aggressive but let's like make sure that we are a little bit more conservative because we don't, it's unexpected and volatile times. However, because we have conviction or we have signals, let's aggressively bet to get ahead. And those are the people that tend to come out stronger. Uh, because one, they're in the privileged position to bet more and two, they have the conviction and they have the tenacity and they have the grit and they have the core muscles to stay in the game.

Speaker A: Yeah, that's fair. I think a good example of that, despite all the struggles at this moment, would be Shopify. I think their stock prices have gone down by 90%. Um, their stock's down by 90%. Um, and they're still going for a fair bit of expansion across the Asian markets.

Speaker B: Right.

Speaker A: Because that's where the next opportunity lies. E commerce is going to be big in these areas. And, uh, having seen what the kind of work that Shopify has been doing, they are, uh, going for quite a bit of an expansion, but they're taking it slowly, they're rolling it out chapter by chapter. So I think that would be the best comparison to take it onto the note. Um, with that being said, with that being said, um, for SaaS companies to grow and expand, uh, having a sales team is always the primary driver. Right? Your salespeople take your growth to the next stage. Um, but how important is it to have a core partnership team to really, really expand your channel and be able to allow you to grow in various mediums?

Speaker B: Yeah, I mean, I think channels, ah, are an unfair advantage in go to market. Um, and so it really depends on the product you're selling and the market that you're going after. In certain product market fit scenarios. There are platforms and channels that you can hook into and ecosystems that give you completely unfair advantages in distribution. Shopify is a great one. We probably have about 10 companies we work with out of 250 companies in our program that are in the Shopify ecosystem. And it is a very simple model. The more successful customers you have, the more reviews you get. The more reviews you get, the more successful customers, customers you have. And you can hack that channel to get more. So that's very special. And if you can leverage those kind of ecosystems, it certainly makes the unfair advantages that you get out of go to market way, way stronger. It certainly builds trust. You're essentially borrowing the brand of Shopify or whatever ecosystem you're plugging into, associating with your brand and Shopify inherently saying, these guys are great and so these customers to go buy and that you can buy more. And so I think, um, partnerships and ecosystems and channels become a very strong way to get unfair growth. I think that the same thing applies to marketing, if you think about it and go to market, there's sales marketing and partnerships is a form of marketing if you think about it, because what's essentially happening is the better you are at marketing, the easier the seller, meaning the more you educate the customer, the more you build the trust, the more you deepen the relationship, the more touches they get. By the time they get to the product, whether it's product led or a salesperson, whether sales driven, the easier the sell, the stronger the marketing, the easier the sell. Similarly. So marketing is an accelerant as part of the equation. Similarly with partnerships and ecosystems, it is an accelerant, but partnerships alone don't do it. It has to be coupled with a conversion process, a sales process, so they can actually take advantage. Partnerships alone aren't enough. You still have to couple it with marketing. I'll give you an example. Um, uh, at Marketo, when I was SVP of strategy, like it was like my second year there. And CEOs like, Hey, I need you to run alliances also. And I'm like, what? And they're like, yeah, like everyone thinks you're smart, but no one's going to know for sure until you hit your hit a number and owner number. So you can't just do strategy, you have to do alliances also. I'm like, okay, cool. Uh, and by the way, it's a $60 million number. I'm like, that's a big number. Uh, has this been done before? It's like, yeah, no one's ever done it before. I'm like, okay, got it. And so I never ran alliances. I had $60 million number to hit and I own technology partnerships, our ecosystem and service partnerships, all of it. 60 million. You had to generate and influence your source revenue. And the biggest thing I learned was partnerships can be done in one of two ways. One way to do it is the old school way of business development and partnerships where you literally just forging some deals, announcing some partnerships, uh, it's kind of the equivalent of popularity contests. Uh, a lot of early stage startups will talk about, oh, we did appsumo or we did this accelerator. Oh, we did this. And they're posting about it, posting about it, posting about. They're basically doing a bunch of popularity contests. They're not doing anything, any real marketing. So a lot of times old school BD is just like that. They're essentially just forging these deals, announcing these deals, but it never reaches the target customer, never ties to sales. And so what I learned was in order to make partnerships work, you actually have to invest in partner marketing and partner sales and partner enablement. And that mobilizes it and ties it into marketing and sales. And so unfair advantages for sure, but not a silver Bullet has to be part of a cohesive go to market strategy that you're, you're applying. Otherwise what you run the risk of, uh, is essentially doing the popularity contest. And so many startups go to die because all they're doing are popularity contests. They don't, like, they'll talk like, we signed this deal, no revenue. Like, what was the revenue? What was the revenue commit? Did they do a market development fund where there's co marketing involved and they've committed to none of it? Uh, and so you end up with popularity contests that don't yield revenue.

Speaker A: Yeah, no, Fair enough. I think for many of the startup companies that are actually into doing this, because this one that you actually just talked about is something that you get to see widely happening. And as I actually look for like more innovative examples of what new partnership models, what new partnership strategies could be, this popularity contest actually pops up the most. Hey, like, uh, my first suggestion ever that popped up was actually Product Hunt. Second was Appsumo.

Speaker B: Product Hunt in Appsumo is not a go to market strategy. It's a popularity contest.

Speaker A: Okay, okay. Dearly noted. I'll remember this for like our future generations of, uh, SaaS companies coming out of Bangladesh. Um, but yeah, no, I think for a, like, you know, uh, we wanted to really, really focus on what a downturn season could look like for a lot of these SaaS companies, particularly in Bangladesh and particularly in the dominant part of the South Asian continent. Because, uh, I think the hit over here will be hard, but the opportunity for us to really, really shine is much more exponential. Uh, which is why I really wanted to have a conversation with you to really, really paint the picture. Hey guys, there's nothing to be afraid of. Just really need to put in the work.

Speaker B: Yes. So fundamentals, man, like look at those companies. It's perfectly possible for you to win. Stop doing popularity contests. Focus on the fundamentals. Get your go to market strategy. Make sure you're creating value for the customer and just stay alive. Uh, yeah, you know, a great analogy for this. One of the things you mentioned earlier was, you know, like you were like, yeah, it's kind of like how it goes with life. Like if you actually read finance, uh, books, every single finance book that you read or investment book that you read will show you this, you know, theoretical two people, one person put in this much money at an early age. One person put in this, didn't put in this much money. Uh, and they always play it through on this person started later. But what they play through is the person that was that figured out a way to stay in the game won out in the long run. The person that was able to invest more during the downturns in investing one out longer. And essentially building a company is essentially an investment strategy. You have a portfolio of one, and that's your asset that you're building. And even if you take a finance perspective to it, now's the time where if you can stay in the game, stay alive, keep investing in it, and keep going by focusing on the fundamentals you will win. That is exact, literal example that they always highlight, um, in the finance books and investment books.

Speaker A: Yeah, yeah. So if you listeners, if you want to get more of that, like, really, really want to get more of that, uh, I'd recommend you all to catch TK's episodes. They come out every Sunday, right? I watch. I tune in every Sunday in Bangladesh. It's like 10pm, 11pm I know it's going to come out then. Yeah. So every Sunday, be sure to check it out, uh, tkkader, or even unstoppable on YouTube.

Speaker B: Yeah, you just go to tkkader.com YouTube. It's super easy.

Speaker A: Yeah, yeah. And if you're a SaaS founder, you can go hit up his YouTube channel and you'll find his SaaS, uh, coaching program. So be sure to hit it up. But we gotta wrap this up for today. Tk, thank you so much for your time. I really, really appreciate the time that you have put into, you know, be here with us out of your busy period. So thanks a lot.

Speaker B: Yeah, thanks for having me.